We’ve all heard the term Non-Fungible Token (“NFT”), but how can they affect intellectual property rights? An NFT is a token that is not interchangeable and represents unique assets owned by a specific individual.[i] Think of an NFT as a digital collector’s item; it is a digital asset representing objects like art, music, in-game items, and videos. It is built with a similar encoding as cryptocurrency and is frequently bought and sold online. What makes NFTs so unique is that you receive ownership rights over the digital asset when purchased. NFTs are held on the Ethereum blockchain, which creates a blockchain-based digital certificate that secures the token and prevents modification of record of ownership, and duplication of the item. As a result, each token is digitally unique and allows content creators to sell their work on the global market and claim resale royalties directly. [ii]

Although the purchase and sale of NFTs have become extremely popular in recent years, this market can cause complications for intellectual property rights.[iii] The conveyance of an NFT alone does not offer individual traditional intellectual property rights such as copyright protections. This may present numerous issues for brand owners such as legal implications for creators who include trademark brands in an unauthorized NFT, and the monitoring and enforcement of brand protection embodied in an NFT. NFT creators have already begun to request NFT patents and, as requests increase, new iterations of the technology may become less novel and therefore more difficult to patent. In addition, while each NFT is digitally unique, a creator may sell an infinite number of NFTs for one digital asset, therefore bringing into question ownership and associated rights. NFTs may also soon face heavy security regulations that could affect their value.[iv]

While the legal implications of NFTs are still fresh, numerous brands including Nike and Hermes have begun to file trademark infringement suits against NFT creators.[v] In order to support suit, a plaintiff alleging trademark infringement must prove (1) that it owns a valid mark; (2) that it obtains priority rights; and (3) that the alleged infringer’s mark will likely confuse the minds of consumers about the sources of goods or services offered under the mark.

In a New York federal court, Nike’s recent suit alleges that StockX, a reseller for streetwear, launched an NFT venture that makes prominent use of Nike’s trademark, Nike’s goodwill, and sells the NFTs at inflated prices to consumers who believe Nike authorizes the digital asset. For example, StockX’s Vault NFT project would allow consumers to purchase an NFT picture of a shoe and later provide them with a physical version of the shoe for an additional fee. Nike argues that it never approved the StockX NFTs and that the unsanctioned products will confuse consumers into believing they are associated with Nike. In its complaint, Nike seeks monetary damages, injunctive relief to permanently stop StockX’s sale of NFTs bearing their famous mark, and destruction of any and all Vault NFTs associated with the brand.

At the end of 2021, Nike purchased RTFKT (pronounced artifact), an NFT studio that produces digital collectibles including virtual sneakers. This collaboration was a major step in accelerating Nike’s digital transformation and extend its digital footprint capabilities. This acquisition may also further Nike’s incentive in protecting its trademark from brand confusion.[vi] Hermes, a French luxury brand, also filed its own suit against Metaverse, a digital artist selling unauthorized Birkin Bag NFTs. In its filing, Hermes alleges that Metaverse is ripping off Hermes’ famous Birkin trademark in a get rich quick scheme. The brand requested an injunction placed on the Metaverse NFTs and requested to transfer the project domain to Hermes.[vii]

These suits hinge on whether the NFTs are simply an extension of digital ownership or whether they are products in their own right. While brand owners may offer NFT creators’ permission to use their trademark in exchange for royalties or naming the creator as a “good faith user” of the mark, companies will likely seek to protect their brand name and goodwill. These cases will be closely watched by other artists and brands and could significantly impact the use of NFTs. NFTs may be the future, but their place in the legal universe is to be determined.

[i] See Mitchell Clark, NFTs, explained, The Verge (Aug. 8, 2021), https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq.

[ii] See Non-fungible tokens (NFT), Ethereum, https://ethereum.org/en/nft/ (last visited Feb. 27, 2021).

[iii] See David Ervin et al., Navigating NFT Brand Management Risks and Rewards, Law360 (Apr. 30, 2021), https://plus.lexis.com/document/index?crid=b9e39504-e6ed-4d7a-a2ee-74c4dc2454b5&pdpermalink=5146de84-ffe6-4fb6-bc0b-3c06b29977b2&pdmfid=1530671&pdisurlapi=true.

[iv] See Ali Dhanani et al., How Nonfungible Tokens Could Disrupt the Legal Landscape, Law360 (Mar. 22, 2021), https://plus.lexis.com/document/?pdmfid=1530671&crid=51680de9-b4e0-408f-a2dd-2fb9aa8841c0&pddocfullpath=%2Fshared%2Fdocument%2Fanalytical materials%2Furn%3AcontentItem%3A628F-B921-F81W-20BD-00000-00&pdcontentcomponentid=122100&pdworkfolderlocatorid=NOT_SAVED_IN_WORKFOLDER&prid=7ef77ce8-83f5-4ce8-ac33-876e73162fd3&ecomp=ff4k&earg=sr4.

[v] See Nike Names StockX in New Lawsuit Over Unauthorized Sneaker NFTs, The Fashion Law (Feb. 3, 2022), https://www.thefashionlaw.com/nike-names-stockx-in-lawsuit-over-sale-of-unauthorized-sneaker-centric-nfts/.

[vi] See Adi Roberston, Nike is testing NFT trademark law by suing a sneaker reseller, The Verge (Feb. 10, 2022, https://www.theverge.com/2022/2/10/22925252/nike-stockx-shoe-lawsuit-vault-nft-trademark-infringement.

[vii] See Taylor Dafoe, Hermès Is Suing a Digital Artist for Selling Unauthorized Birkin Bag NFTs in the Metaverse for as Much as Six Figures, Artnet (Jan. 26, 2022) https://news.artnet.com/art-world/hermes-metabirkins-2063954.